In the Bag: Coach Buying Kate Spade for $2.4 Billion

A Kate Spade sign hangs in the window of one of their shops, in New York, Monday, May 8, 2017, A Kate Spade sign hangs in the window of one of their shops, in New York, Monday, May 8, 2017, photo: AP/Richard Drew

NEW YORK – Coach will spend $2.4 billion for Kate Spade, tying together two premier brands in the luxury goods sector that have fought to snare younger shoppers.

Noting that crucial demographic, Coach Inc. CEO Victor Luis said in a statement Monday that Kate Spade has a “strong awareness among consumers, especially millennials.” Coach executives say that 60 percent of Kate Spade customers are in that group.

Coach has made an aggressive push to polish the image of its namesake brand, scaling back on its distribution in department stores and relying less on the discounts it had used to get shoppers to buy the brand. But to power future growth, it’s begun to build an empire of luxury brands.

The company bought shoe maker Stuart Weitzman in 2015 in a deal valued up to $574 million, but the Kate Spade brand is its biggest acquisition yet. It comes as the overall luxury business is being challenged by affluent shoppers who have lots of online options to buy status goods.

“The acquisition of Kate Spade is an important step in Coach’s evolution as a customer-focused, multi-brand organization,” Luis said in a statement. “The combination enhances our positon in the attractive global premium handbag and accessories, footwear and outerwear categories.”

Last month, the company hired Joshua Schulman, who had been president of Neiman Marcus’s Bergdorf Goodman division and the former CEO of Jimmy Choo, and put him in the new position of president and CEO of the Coach brand. Analysts saw that as a step toward a new company structure with a number of distinct brands under one umbrella, with each brand chief reporting to Luis. Schulman officially begins his job on June 5.

Coach executives said the company will not be looking at any other major acquisitions for now and will limit any purchases to smaller ones.

Kate Spade executives said they see big opportunities to tap into the Coach brand’s expert supply network in leather goods as well as Stuart Weitzman’s established supply network in footwear to cut back on costs. Coach also plans to expand Kate Spade’s distribution in Asia and Europe, taking advantage of its strong overseas network.

Coach said it will be borrowing some of the strategies it used for its own brand and will be scaling back on Kate Spade’s wholesale accounts and its flash sales business that hurt the image of the brand. But Coach executives say the Kate Spade brand is still healthy.

Earlier this month, Coach reported its fourth straight quarter of gains in revenue at stores open at least a year in the North America market. Coach handbags above the $400 price level now account for 55 percent of the category’s sales in North America, up from 40 percent last year.

Coach will pay $18.50 per share of Kate Spade & Co. That’s a 9 percent premium to its Friday closing price of $16.97, though the shares rose to close at $18.38 on Monday. Coach shares rose nearly 5 percent to $44.71.